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CHAPTER 12

Corporate Culture and Leadership Keys to Good Strategy Execution

Learning Objectives

THIS CHAPTER WILL HELP YOU UNDERSTAND:

LO 1 The key features of a company’s corporate culture and the role of a company’s core values and ethical standards in building corporate culture.

LO 2 How and why a company’s culture can aid the drive for proficient strategy execution.

LO 3 The kinds of actions management can take to change a problem corporate culture.

LO 4 What constitutes effective managerial leadership in achieving superior strategy execution.

© Andy Baker/Ikon Images/age fotostock

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Success goes to those with a corporate culture that assures the ability to anticipate and meet customer demand.

Tadashi Okamura—Former president and CEO of Toshiba

As we look ahead into the next century, leaders will be those who empower others.

Bill Gates—Cofounder and former CEO and chair of

Microsoft

Leadership is practiced, not so much in words as in attitude and in actions.

Harold S. Geneen—Former CEO and chair of ITT

CORE CONCEPT

Corporate culture refers to the shared values, ingrained attitudes, core beliefs, and company traditions that determine norms of behavior, accepted work practices, and styles of operating.

Every company has its own unique corporate culture—the shared values, ingrained attitudes, and company traditions that determine norms of behavior, accepted work practices, and styles of operating.1 The character of a company’s culture is a product of the core values and beliefs that executives espouse, the standards of what is ethically acceptable and what is not, the “chemistry” and the “personality” that permeate the work environment, the company’s traditions, and the stories that get told over and over to illustrate and reinforce the company’s shared values, business practices, and traditions. In a very real sense, the culture is the company’s automatic, self-replicating “operating system” that defines “how we do things around here.”2 It can be thought of as the company’s psyche or organizational DNA.3 A company’s culture is important because it influences the

In the previous two chapters, we examined eight of the managerial tasks that drive good strategy execution: staffing the organization, acquiring the needed resources and capabilities, designing the organizational structure, allocating resources, establishing policies and procedures, employing process management tools, installing operating

systems, and providing the right incentives. In this chapter, we explore the two remaining managerial tasks that contribute to good strategy execution: creating a corporate culture that supports good strategy execution and leading the strategy execu- tion process.

INSTILLING A CORPORATE CULTURE CONDUCIVE TO GOOD STRATEGY EXECUTION

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organization’s actions and approaches to conducting business. As such, it plays an important role in strategy execution and may have an appreciable effect on business performance as well.

Corporate cultures vary widely. For instance, the bedrock of Walmart’s culture is zealous pursuit of low costs and frugal operating practices, a strong work ethic, ritu- alistic headquarters meetings to exchange ideas and review problems, and company executives’ commitment to visiting stores, listening to customers, and soliciting sug- gestions from employees. The culture at Apple is customer-centered, secretive, and highly protective of company-developed technology. To spur innovation and creativity, the company fosters extensive collaboration and cross-pollination among differ- ent work groups. But it does so in a manner that demands secrecy—employees are expected not to reveal anything relevant about what new project they are working on, not to employees outside their immediate work group and especially not to fam- ily members or other outsiders; it is common for different employees working on the same project to be assigned different project code names. The different pieces of a new product launch often come together like a puzzle at the last minute.4 W. L. Gore & Associates, best known for GORE-TEX, credits its unique culture for allowing the company to pursue multiple end-market applications simultaneously, enabling rapid growth from a niche business into a diversified multinational company. The compa- ny’s culture is team-based and designed to foster personal initiative, with no tradi- tional organizational charts, no chains of command, no predetermined channels of communication. The culture encourages multidiscipline teams to organize around opportunities and in the process leaders emerge. At Nordstrom, the corporate cul- ture is centered on delivering exceptional service to customers, where the company’s motto is “Respond to unreasonable customer requests,” and each out-of-the-ordinary request is seen as an opportunity for a “heroic” act by an employee that can further the company’s reputation for unparalleled customer service. Nordstrom makes a point of promoting employees noted for their heroic acts and dedication to outstanding service.

Illustration Capsule 12.1 describes the corporate culture of another exemplar company—Epic Systems, well known by health care providers.

Identifying the Key Features of a Company’s Corporate Culture A company’s corporate culture is mirrored in the character or “personality” of its work environment—the features that describe how the company goes about its busi- ness and the workplace behaviors that are held in high esteem. Some of these fea- tures are readily apparent, and others operate quite subtly. The chief things to look for include:

∙ The values, business principles, and ethical standards that management preaches and practices—these are the key to a company’s culture, but actions speak much louder than words here.

∙ The company’s approach to people management and the official policies, proce- dures, and operating practices that provide guidelines for the behavior of company personnel.

∙ The atmosphere and spirit that pervades the work climate—whether the work- place is competitive or cooperative, innovative or resistant to change, collegial or politicized, all business or fun-loving, and the like.

LO 1

The key features of a company’s corporate culture and the role of a company’s core values and ethical standards in building corporate culture.

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ILLUSTRATION CAPSULE 12.1

Epic Systems Corporation creates software to support record keeping for mid- to large-sized health care orga- nizations, such as hospitals and managed care organi- zations. Founded in 1979 by CEO Judith Faulkner, the company claims that its software is “quick to implement, easy to use and highly interoperable through industry standards.” Widely recognized for superior products and high levels of customer satisfaction, Epic won the Best Overall Software Suite award for the sixth consec- utive year—a ranking determined by health care profes- sionals and compiled by KLAS, a provider of company performance reviews. Part of this success has been attributed to Epic’s strong corporate culture—one based on the slogan “Do good, have fun, make money.” By remaining true to its 10 commandments and principles, its homegrown version of core values, Epic has nurtured a work climate where employees are on the same page and all have an overarching standard to guide their actions.

Epic’s 10 Commandments:

1. Do not go public. 2. Do not be acquired. 3. Software must work. 4. Expectations = reality.

5. Keep commitments. 6. Focus on competency. Do not tolerate mediocrity. 7. Have standards. Be fair to all. 8. Have courage. What you put up with is what you stand

for. 9. Teach philosophy and culture. 10. Be frugal. Do not take on debt for operations.

Epic’s Principles:

1. Make our products a joy to use. 2. Have fun with customers. 3. Design in collaboration with users. 4. Make it easy for users to do the right thing. 5. Improve the patient’s health and healthcare experience. 6. Generalize to benefit more. 7. Follow processes. Find root causes. Fix processes. 8. Dissent when you disagree; once decided, support. 9. Do what is difficult for us if it makes things easier for

our users. 10. Escalate problems at the start, not when all hell breaks

loose.

Epic fosters this high-performance culture from the get-go. It targets top-tier universities to hire entry-level talent, focusing on skills rather than personality. A rig- orous training and orientation program indoctrinates each new employee. In 2002, Faulkner claimed that someone coming straight from college could become an “Epic person” in three years, whereas it takes six years for someone coming from another company. This culture positively affects Epic’s strategy execution because employees are focused on the most important actions, there is peer pressure to contribute to Epic’s success, and employees are genuinely excited to be involved. Epic’s faith in its ability to acculturate new team members and stick true to its core values has allowed it to sustain its status as a premier provider of health care IT systems.

Strong Guiding Principles Drive the High-Performance Culture at Epic

© Ariel Skelley/Blend Images/Getty Images

Note: Developed with Margo Cox.

Sources: Company website; communications with an Epic insider; “Epic Takes Back ‘Best in KLAS’ title,” Healthcare IT News, January 29, 2015, www.healthcareitnews.com/news/epic-takes-back-best-klas; “Epic Systems’ Headquarters Reflect Its Creativity, Growth,” Boston Globe, July 28, 2015, www.bostonglobe.com/business/2015/07/28/epic-systems-success-like-its-headquarters-blend-creativity-and- diligence/LpdQ5m0DDS4UVilCVooRUJ/story.html (accessed December 5, 2015).

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∙ How managers and employees interact and relate to one another—whether people tend to work independently or collaboratively, whether communications among employees are free-flowing or infrequent, whether people are called by their first names, whether co-workers spend little or lots of time together outside the work- place, and so on.

∙ The strength of peer pressure to do things in particular ways and conform to expected norms.

∙ The actions and behaviors that management explicitly encourages and rewards and those that are frowned upon.

∙ The company’s revered traditions and oft-repeated stories about “heroic acts” and “how we do things around here.”

∙ The manner in which the company deals with external stakeholders—whether it treats suppliers as business partners or prefers hard-nosed, arm’s-length business arrangements and whether its commitment to corporate citizenship and environ- mental sustainability is strong and genuine.

The values, beliefs, and practices that undergird a company’s culture can come from anywhere in the organizational hierarchy. Typically, key elements of the culture originate with a founder or certain strong leaders who articulated them as a set of business principles, company policies, operating approaches, and ways of dealing with employees, customers, vendors, shareholders, and local communities where the com- pany has operations. They also stem from exemplary actions on the part of company personnel and evolving consensus about “how we ought to do things around here.”5 Over time, these cultural underpinnings take root, come to be accepted by company managers and employees alike, and become ingrained in the way the company con- ducts its business.

The Role of Core Values and Ethics The foundation of a company’s corporate culture nearly always resides in its dedication to certain core values and the bar it sets for ethical behavior. The culture-shaping significance of core values and ethical behaviors accounts for why so many companies have developed a formal value statement and a code of ethics. Of course, sometimes a company’s stated core values and code of ethics are cosmetic, existing mainly to impress outsiders and help create a positive company image. But usually they have been developed to purposely mold

the culture and communicate the kinds of actions and behavior that are expected of all company personnel. Many executives want the work climate at their companies to mirror certain values and ethical standards, partly because of personal convic- tions but mainly because they are convinced that adherence to such principles will promote better strategy execution, make the company a better performer, and posi- tively impact its reputation.6 Not incidentally, strongly ingrained values and ethical standards reduce the likelihood of lapses in ethical and socially approved behavior that mar a company’s public image and put its financial performance and market standing at risk.

As depicted in Figure 12.1, a company’s stated core values and ethical prin- ciples have two roles in the culture-building process. First, a company that works hard at putting its stated core values and ethical principles into practice fosters a work climate in which company personnel share strongly held convictions about how the company’s business is to be conducted. Second, the stated values and ethical principles provide company personnel with guidance about the manner in which they are to do their jobs—which behaviors and ways of doing things are

A company’s culture is grounded in and shaped by its core values and ethical standards.

A company’s value statement and code of ethics communicate expectations of how employees should conduct themselves in the workplace.

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approved (and expected) and which are out-of-bounds. These value-based and ethics- based cultural norms serve as yardsticks for gauging the appropriateness of particular actions, decisions, and behaviors, thus helping steer company personnel toward both doing things right and doing the right thing.

Embedding Behavioral Norms in the Organization and Perpetuating the Culture Once values and ethical standards have been for- mally adopted, they must be institutionalized in the company’s policies and practices and embedded in the conduct of company personnel. This can be done in a number of different ways.7 Tradition-steeped companies with a rich folklore rely heavily on word-of-mouth indoctrination and the power of tradition to instill values and enforce ethical conduct. But most companies employ a variety of techniques, drawing on some or all of the following:

1. Screening applicants and hiring those who will mesh well with the culture. 2. Incorporating discussions of the company’s culture and behavioral norms into

orientation programs for new employees and training courses for managers and employees.

3. Having senior executives frequently reiterate the importance and role of company values and ethical principles at company events and in internal communications to employees.

4. Expecting managers at all levels to be cultural role models and exhibit the advo- cated cultural norms in their own behavior.

5. Making the display of cultural norms a factor in evaluating each person’s job per- formance, granting compensation increases, and deciding who to promote.

6. Stressing that line managers all the way down to first-level supervisors give ongo- ing attention to explaining the desired cultural traits and behaviors in their areas and clarifying why they are important.

FIGURE 12.1 The Two Culture-Building Roles of a Company’s Core Values and Ethical Standards

Foster a work climate where company personnel share common and strongly held convictions about how the company’s business is to be conducted.

Provide company personnel with guidance about how to do their jobs—steering them toward both doing things right and doing the right thing.

A company’s stated core values and

ethical principles

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7. Encouraging company personnel to exert strong peer pressure on co-workers to conform to expected cultural norms.

8. Holding periodic ceremonies to honor people who excel in displaying the com- pany values and ethical principles.

To deeply ingrain the stated core values and high ethical standards, companies must turn them into strictly enforced cultural norms. They must make it unequivo- cally clear that living up to the company’s values and ethical standards has to be “a way of life” at the company and that there will be little toleration for errant behavior.

The Role of Stories Frequently, a significant part of a company’s culture is captured in the stories that get told over and over again to illustrate to newcomers the importance of certain values and the depth of commitment that various company person- nel have displayed. One of the folktales at Zappos, known for its outstanding customer service, is about a customer who ordered shoes for her ill mother from Zappos, hoping the company would remedy her mother’s foot pain and numbness. When the shoes didn’t work, the mother called the company to ask how to return them and explain why she was returning them. Two days later, she received a large bouquet of flowers from the com- pany, along with well wishes and a customer upgrade giving her free expedited service on all future orders. Specialty food market Trader Joe’s is similarly known for its culture of going beyond the call of duty for its customers. When a World War II veteran was snowed in without any food for meals, his daughter called several supermarkets to see if they offered grocery delivery. Although Trader Joe’s technically doesn’t offer deliv- ery, it graciously helped the veteran, even recommending items for his low-sodium diet. When the store delivered the groceries, the veteran wasn’t charged for either the grocer- ies or the delivery. When Apple’s iPad 2 was launched, one was returned to the company almost immediately, with a note attached that said “Wife said No!”8 Apple sent the cus- tomer a refund, but it also sent back the device with a note reading “Apple says Yes!” Such stories serve the valuable purpose of illustrating the kinds of behavior the company reveres and inspiring company personnel to perform similarly. Moreover, each retelling of a legendary story puts a bit more peer pressure on company personnel to display core values and do their part in keeping the company’s traditions alive.

Forces That Cause a Company’s Culture to Evolve Despite the role of time-honored stories and long-standing traditions in perpetuating a company’s culture, cultures are far from static—just like strategy and organizational structure, they evolve. New challenges in the marketplace, revolutionary technologies, and shift- ing internal conditions—especially an internal crisis, a change in company direction, or top-executive turnover—tend to breed new ways of doing things and, in turn, drive cultural evolution. An incoming CEO who decides to shake up the existing business and take it in new directions often triggers a cultural shift, perhaps one of major pro- portions. Likewise, diversification into new businesses, expansion into foreign coun- tries, rapid growth that brings an influx of new employees, and the merger with or acquisition of another company can all precipitate significant cultural change.

Strong versus Weak Cultures Company cultures vary widely in strength and influence. Some are strongly embed- ded and have a big influence on a company’s operating practices and the behavior of company personnel. Others are weakly ingrained and have little effect on behaviors and how company activities are conducted.

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Strong-Culture Companies The hallmark of a strong-culture company is the dominating presence of certain deeply rooted values, business principles, and behavioral norms that “regulate” the conduct of company personnel and determine the climate of the workplace.9 In strong-culture companies, senior managers make a point of explaining and reiterating why these values, principles, norms, and oper- ating approaches need to govern how the company conducts its business and how they ultimately lead to better business performance. Furthermore, they make a con- scious effort to display these values, principles, and behavioral norms in their own actions—they walk the talk. An unequivocal expectation that company personnel will act and behave in accordance with the adopted values and ways of doing busi- ness leads to two important outcomes: (1) Over time, the professed values come to be widely shared by rank-and-file employees—people who dislike the culture tend to leave—and (2) individuals encounter strong peer pressure from co-workers to observe the culturally approved norms and behaviors. Hence, a strongly implanted corporate culture ends up having a powerful influence on behavior because so many company personnel are accepting of the company’s culturally approved traditions and because this acceptance is reinforced by both management expectations and co-worker peer pressure to conform to cultural norms.

Strong cultures emerge only after a period of deliberate and rather intensive cul- ture building that generally takes years (sometimes decades). Two factors contribute to the development of strong cultures: (1) a founder or strong leader who established core values, principles, and practices that are viewed as having contributed to the success of the company; and (2) a sincere, long-standing company commitment to operating the business according to these established traditions and values. Continuity of leadership, low workforce turnover, geographic concentration, and considerable organizational success all contribute to the emergence and sustainability of a strong culture.10

In strong-culture companies, values and behavioral norms are so ingrained that they can endure leadership changes at the top—although their strength can erode over time if new CEOs cease to nurture them or move aggressively to institute cultural adjustments. The cultural norms in a strong-culture company typically do not change much as strategy evolves, either because the culture constrains the choice of new strategies or because the dominant traits of the culture are somewhat strategy-neutral and compatible with evolving versions of the company’s strategy. As a consequence, strongly implanted cultures provide a huge assist in executing strategy because com- pany managers can use the traditions, beliefs, values, common bonds, or behavioral norms as levers to mobilize commitment to executing the chosen strategy.

Weak-Culture Companies In direct contrast to strong-culture companies, weak-culture companies lack widely shared and strongly held values, principles, and behavioral norms. As a result, they also lack cultural mechanisms for aligning, constraining, and regulating the actions, decisions, and behaviors of company person- nel. In the absence of any long-standing top management commitment to particular values, beliefs, operating practices, and behavioral norms, individuals encounter little pressure to do things in particular ways. Such a dearth of companywide cultural influ- ences and revered traditions produces a work climate where there is no strong employee allegiance to what the company stands for or to operating the business in well-defined ways. While individual employees may well have some bonds of identification with and loyalty toward their department, their colleagues, their union, or their immediate boss, there’s neither passion about the company nor emotional commitment to what it is trying to accomplish—a condition that often results in many employees’ viewing their company as just a place to work and their job as just a way to make a living.

CORE CONCEPT

In a strong-culture company, deeply rooted values and norms of behavior are widely shared and regulate the conduct of the company’s business.

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As a consequence, weak cultures provide little or no assistance in executing strategy because there are no traditions, beliefs, values, common bonds, or behav- ioral norms that management can use as levers to mobilize commitment to executing the chosen strategy. Without a work climate that channels organizational energy in the direction of good strategy execution, managers are left with the options of either using compensation incentives and other motivational devices to mobilize employee commitment, supervising and monitoring employee actions more closely, or trying to establish cultural roots that will in time start to nurture the strategy execution process.

Why Corporate Cultures Matter to the Strategy Execution Process Even if a company has a strong culture, the culture and work climate may or may not be compatible with what is needed for effective implementation of the chosen strat- egy. When a company’s present culture promotes attitudes, behaviors, and ways of doing things that are in sync with the chosen strategy and conducive to first-rate strat- egy execution, the culture functions as a valuable ally in the strategy execution pro- cess. For example, a corporate culture characterized by frugality and thrift prompts employee actions to identify cost-saving opportunities—the very behavior needed for successful execution of a low-cost leadership strategy. A culture that celebrates taking initiative, exhibiting creativity, taking risks, and embracing change is conducive to successful execution of product innovation and technological leadership strategies.11

A culture that is grounded in actions, behaviors, and work practices that are conducive to good strategy implementation supports the strategy execution effort in three ways:

1. A culture that is well matched to the chosen strategy and the requirements of the strategy execution effort focuses the attention of employees on what is most important to this effort. Moreover, it directs their behavior and serves as a guide to their decision making. In this manner, it can align the efforts and decisions of employees throughout the firm and minimize the need for direct supervision.

2. Culture-induced peer pressure further induces company personnel to do things in a manner that aids the cause of good strategy execution. The stronger the cul- ture (the more widely shared and deeply held the values), the more effective peer pressure is in shaping and supporting the strategy execution effort. Research has shown that strong group norms can shape employee behavior even more power- fully than can financial incentives.

3. A company culture that is consistent with the requirements for good strategy exe- cution can energize employees, deepen their commitment to execute the strategy flawlessly, and enhance worker productivity in the process. When a company’s culture is grounded in many of the needed strategy-executing behaviors, employ- ees feel genuinely better about their jobs, the company they work for, and the merits of what the company is trying to accomplish. Greater employee buy-in for what the company is trying to accomplish boosts motivation and marshals organizational energy behind the drive for good strategy execution. An energized workforce enhances the chances of achieving execution-critical performance tar- gets and good strategy execution.

In sharp contrast, when a culture is in conflict with the chosen strategy or what is required to execute the company’s strategy well, the culture becomes a

LO 2

How and why a company’s culture can aid the drive for proficient strategy execution.

A strong culture that encourages actions, behaviors, and work practices that are in sync with the chosen strategy and conducive to good strategy execution is a valuable ally in the strategy execution process.

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stumbling block.12 Some of the very behaviors needed to execute the strategy suc- cessfully run contrary to the attitudes, behaviors, and operating practices embedded in the prevailing culture. Such a clash poses a real dilemma for company personnel. Should they be loyal to the culture and company traditions (to which they are likely to be emotionally attached) and thus resist or be indifferent to actions that will promote better strategy execution—a choice that will certainly weaken the drive for good strat- egy execution? Alternatively, should they go along with management’s strategy execu- tion effort and engage in actions that run counter to the culture—a choice that will likely impair morale and lead to a less-than-enthusiastic commitment to good strategy execution? Neither choice leads to desirable outcomes. Culture-bred resistance to the actions and behaviors needed for good strategy execution, particularly if strong and widespread, poses a formidable hurdle that must be cleared for a strategy’s execution to be successful.

The consequences of having—or not having—an execution-supportive corporate culture says something important about the task of managing the strategy exe- cution process: Closely aligning corporate culture with the requirements for proficient strategy execution merits the full attention of senior executives. The culture-building objective is to create a work climate and style of operating that mobilize the energy of company personnel squarely behind efforts to execute strat- egy competently. The more deeply management can embed execution-supportive ways of doing things, the more management can rely on the culture to automati- cally steer company personnel toward behaviors and work practices that aid good strategy execution and veer from doing things that impede it. Moreover, culturally astute managers understand that nourishing the right cultural environment not only adds power to their push for proficient strategy execution but also promotes strong employee identification with, and commitment to, the company’s vision, performance targets, and strategy.

Healthy Cultures That Aid Good Strategy Execution A strong culture, provided it fits the chosen strategy and embraces execution- supportive attitudes, behaviors, and work practices, is definitely a healthy culture. Two other types of cultures exist that tend to be healthy and largely supportive of good strategy execution: high-performance cultures and adaptive cultures.

High-Performance Cultures Some companies have so-called high- performance cultures where the standout traits are a “can-do” spirit, pride in doing things right, no- excuses accountability, and a pervasive results-oriented work climate in which people go all out to meet or beat stretch objectives.13 In high-performance cultures, there’s a strong sense of involvement on the part of company personnel and emphasis on individual initiative and effort. Performance expectations are clearly delineated for the company as a whole, for each organizational unit, and for each individual. Issues and problems are promptly addressed; there’s a razor-sharp focus on what needs to be done. The clear and unyielding expectation is that all company personnel, from senior executives to frontline employees, will display high-performance behaviors and a passion for making the company successful. Such a culture— permeated by a spirit of achievement and constructive pressure to achieve good results—is a valuable con- tributor to good strategy execution and operating excellence.14

The challenge in creating a high-performance culture is to inspire high loyalty and dedication on the part of employees, such that they are energized to put forth their very

It is in management’s best interest to dedicate considerable effort to establishing a corporate culture that encourages behaviors and work practices conducive to good strategy execution.

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best efforts. Managers have to take pains to reinforce constructive behavior, reward top performers, and purge habits and behaviors that stand in the way of high produc- tivity and good results. They must work at knowing the strengths and weaknesses of their subordinates to better match talent with task and enable people to make mean- ingful contributions by doing what they do best. They have to stress learning from mistakes and must put an unrelenting emphasis on moving forward and making good progress—in effect, there has to be a disciplined, performance-focused approach to managing the organization.

Adaptive Cultures The hallmark of adaptive corporate cultures is willingness on the part of organization members to accept change and take on the challenge of introducing and executing new strategies. Company personnel share a feeling of con- fidence that the organization can deal with whatever threats and opportunities arise; they are receptive to risk taking, experimentation, innovation, and changing strate- gies and practices. The work climate is supportive of managers and employees who propose or initiate useful change. Internal entrepreneurship (often called intrapre- neurship) on the part of individuals and groups is encouraged and rewarded. Senior executives seek out, support, and promote individuals who exercise initiative, spot opportunities for improvement, and display the skills to implement them. Managers

openly evaluate ideas and suggestions, fund initiatives to develop new or better products, and take prudent risks to pursue emerging market opportunities. As in high-performance cultures, the company exhibits a proactive approach to identify- ing issues, evaluating the implications and options, and moving ahead quickly with workable solutions. Strategies and traditional operating practices are modified as needed to adjust to, or take advantage of, changes in the business environment.

But why is change so willingly embraced in an adaptive culture? Why are organization members not fearful of how change will affect them? Why does an adaptive culture not break down from the force of ongoing changes in strategy, operating practices, and behavioral norms? The answers lie in two distinctive and dominant traits of an adaptive culture: (1) Changes in operating practices and

behaviors must not compromise core values and long-standing business principles (since they are at the root of the culture), and (2) changes that are instituted must satisfy the legitimate interests of key constituencies—customers, employees, share- holders, suppliers, and the communities where the company operates. In other words, what sustains an adaptive culture is that organization members perceive the changes that management is trying to institute as legitimate, in keeping with the core val- ues, and in the overall best interests of stakeholders.15 Not surprisingly, company per- sonnel are usually more receptive to change when their employment security is not threatened and when they view new duties or job assignments as part of the process of adapting to new conditions. Should workforce downsizing be necessary, it is impor- tant that layoffs be handled humanely and employee departures be made as painless as possible.

Technology companies, software companies, and Internet-based companies are good illustrations of organizations with adaptive cultures. Such companies thrive on change—driving it, leading it, and capitalizing on it. Companies like Amazon, Google, Apple, Facebook, Adobe, Groupon, Intel, and Yelp cultivate the capability to act and react rapidly. They are avid practitioners of entrepreneurship and innovation, with a demonstrated willingness to take bold risks to create altogether new products, new businesses, and new industries. To create and nurture a culture that can adapt rap- idly to shifting business conditions, they make a point of staffing their organizations

As a company’s strategy evolves, an adaptive culture is a definite ally in the strategy-implementing, strategy-executing process as compared to cultures that are resistant to change.

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with people who are flexible, who rise to the challenge of change, and who have an aptitude for adapting well to new circumstances.

In fast-changing business environments, a corporate culture that is receptive to altering organizational practices and behaviors is a virtual necessity. However, adap- tive cultures work to the advantage of all companies, not just those in rapid-change environments. Every company operates in a market and business climate that is chang- ing to one degree or another and that, in turn, requires internal operating responses and new behaviors on the part of organization members.

Unhealthy Cultures That Impede Good Strategy Execution The distinctive characteristic of an unhealthy corporate culture is the presence of counterproductive cultural traits that adversely impact the work climate and company performance. Five particularly unhealthy cultural traits are hostility to change, heavily politicized decision making, insular thinking, unethical and greed-driven behaviors, and the presence of incompatible, clashing subcultures.

Change-Resistant Cultures Change-resistant cultures—where fear of change and skepticism about the importance of new developments are the norm— place a premium on not making mistakes, prompting managers to lean toward safe, conservative options intended to maintain the status quo, protect their power base, and guard their immediate interests. When such companies encounter business envi- ronments with accelerating change, going slow on altering traditional ways of doing things can be a serious liability. Under these conditions, change-resistant cultures encourage a number of unhealthy behaviors—avoiding risks, not capitalizing on emerging opportunities, taking a lax approach to both product innovation and continu- ous improvement in performing value chain activities, and responding more slowly than is warranted to market change. In change-resistant cultures, word quickly gets around that proposals to do things differently face an uphill battle and that people who champion them may be seen as something of a nuisance or a troublemaker. Executives who don’t value managers or employees with initiative and new ideas put a damper on product innovation, experimentation, and efforts to improve.

Hostility to change is most often found in companies with stodgy bureaucracies that have enjoyed considerable market success in years past and that are wedded to the “We have done it this way for years” syndrome. General Motors, IBM, Sears, Borders, and Eastman Kodak are classic examples of companies whose change-resistant bureau- cracies have damaged their market standings and financial performance; clinging to what made them successful, they were reluctant to alter operating practices and modify their business approaches when signals of market change first sounded. As strategies of gradual change won out over bold innovation, all four lost market share to rivals that quickly moved to institute changes more in tune with evolving market conditions and buyer preferences. While IBM and GM have made strides in building a culture needed for market success, Sears and Kodak are still struggling to recoup lost ground.

Politicized Cultures What makes a politicized internal environment so unhealthy is that political infighting consumes a great deal of organizational energy, often with the result that what’s best for the company takes a backseat to politi- cal maneuvering. In companies where internal politics pervades the work climate,

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empire-building managers pursue their own agendas and operate the work units under their supervision as autonomous “fiefdoms.” The positions they take on issues are usu- ally aimed at protecting or expanding their own turf. Collaboration with other organi- zational units is viewed with suspicion, and cross-unit cooperation occurs grudgingly. The support or opposition of politically influential executives and/or coalitions among departments with vested interests in a particular outcome tends to shape what actions the company takes. All this political maneuvering takes away from efforts to execute strategy with real proficiency and frustrates company personnel who are less political and more inclined to do what is in the company’s best interests.

Insular, Inwardly Focused Cultures Sometimes a company reigns as an industry leader or enjoys great market success for so long that its personnel start to believe they have all the answers or can develop them on their own. There is a strong tendency to neglect what customers are saying and how their needs and expectations are changing. Such confidence in the correctness of how the company does things and an unflinching belief in its competitive superiority breed arrogance, prompting company personnel to discount the merits of what outsiders are doing and to see little payoff from studying best-in-class performers. Insular thinking, internally driven solu- tions, and a must-be-invented-here mindset come to permeate the corporate culture. An inwardly focused corporate culture gives rise to managerial inbreeding and a fail- ure to recruit people who can offer fresh thinking and outside perspectives. The big risk of insular cultural thinking is that the company can underestimate the capabilities of rival companies while overestimating its own—all of which diminishes a compa- ny’s competitiveness over time.

Unethical and Greed-Driven Cultures Companies that have little regard for ethical standards or are run by executives driven by greed and ego gratifi- cation are scandals waiting to happen. Executives exude the negatives of arrogance, ego, greed, and an “ends-justify-the-means” mentality in pursuing overambitious rev- enue and profitability targets.16 Senior managers wink at unethical behavior and may cross over the line to unethical (and sometimes criminal) behavior themselves. They are prone to adopt accounting principles that make financial performance look bet- ter than it really is. Legions of companies have fallen prey to unethical behavior and greed, most notably Turing Pharmaceuticals, Enron, Three Ocean Shipping, BP, AIG, Countrywide Financial, and JPMorgan Chase, with executives being indicted and/or convicted of criminal behavior.

Incompatible, Clashing Subcultures Although it is common to speak about corporate culture in the singular, it is not unusual for companies to have multiple cultures (or subcultures). Values, beliefs, and practices within a company sometimes vary significantly by department, geographic location, division, or business unit. As long as the subcultures are compatible with the overarching corporate culture and are supportive of the strategy execution efforts, this is not problematic. Multiple cultures pose an unhealthy situation when they are composed of incompatible subcultures that embrace conflicting business philosophies, support inconsistent approaches to strat- egy execution, and encourage incompatible methods of people management. Clashing subcultures can prevent a company from coordinating its efforts to craft and execute strategy and can distract company personnel from the business of business. Internal jockeying among the subcultures for cultural dominance impedes teamwork among the company’s various organizational units and blocks the emergence of a collaborative

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approach to strategy execution. Such a lack of consensus about how to proceed is likely to result in fragmented or inconsistent approaches to implementing new strate- gic initiatives and in limited success in executing the company’s overall strategy.

Changing a Problem Culture When a strong culture is unhealthy or otherwise out of sync with the actions and behaviors needed to execute the strategy successfully, the culture must be changed as rapidly as can be managed. This means eliminating any unhealthy or dysfunctional cultural traits as fast as possible and aggressively striving to ingrain new behaviors and work practices that will enable first-rate strategy execution. The more entrenched the unhealthy or mismatched aspects of a company culture, the more likely the culture will impede strategy execution and the greater the need for change.

Changing a problem culture is among the toughest management tasks because of the heavy anchor of ingrained behaviors and attitudes. It is natural for company per- sonnel to cling to familiar practices and to be wary of change, if not hostile to new approaches concerning how things are to be done. Consequently, it takes concerted management action over a period of time to root out unwanted behaviors and replace an unsupportive culture with more effective ways of doing things. The single most vis- ible factor that distinguishes successful culture-change efforts from failed attempts is competent leadership at the top. Great power is needed to force major cultural change and overcome the stubborn resistance of entrenched cultures—and great power is possessed only by the most senior executives, especially the CEO. However, while top management must lead the change effort, the tasks of marshaling support for a new culture and instilling the desired cultural behaviors must involve a company’s whole management team. Middle managers and frontline supervisors play a key role in implementing the new work practices and operating approaches, helping win rank-and- file acceptance of and support for changes, and instilling the desired behavioral norms.

As shown in Figure 12.2, the first step in fixing a problem culture is for top man- agement to identify those facets of the present culture that are dysfunctional and pose obstacles to executing strategic initiatives. Second, managers must clearly define the desired new behaviors and features of the culture they want to create. Third, they must convince company personnel of why the present culture poses problems and why and how new behaviors and operating approaches will improve company performance— the case for cultural reform has to be persuasive. Finally, and most important, all the talk about remodeling the present culture must be followed swiftly by visible, forceful actions to promote the desired new behaviors and work practices—actions that com- pany personnel will interpret as a determined top-management commitment to bring- ing about a different work climate and new ways of operating. The actions to implant the new culture must be both substantive and symbolic.

Making a Compelling Case for Culture Change The way for man- agement to begin a major remodeling of the corporate culture is by selling company personnel on the need for new-style behaviors and work practices. This means mak- ing a compelling case for why the culture-remodeling efforts are in the organization’s best interests and why company personnel should wholeheartedly join the effort to do things somewhat differently. This can be done by:

∙ Explaining why and how certain behaviors and work practices in the current cul- ture pose obstacles to good strategy execution.

LO 3

The kinds of actions management can take to change a problem corporate culture.

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∙ Explaining how new behaviors and work practices will be more advantageous and produce better results. Effective culture-change leaders are good at telling stories to describe the new values and desired behaviors and connect them to everyday practices.

∙ Citing reasons why the current strategy has to be modified, if the need for cultural change is due to a change in strategy. This includes explaining why the new stra- tegic initiatives will bolster the company’s competitiveness and performance and how a change in culture can help in executing the new strategy.

It is essential for the CEO and other top executives to talk personally to per- sonnel all across the company about the reasons for modifying work practices and culture-related behaviors. For the culture-change effort to be successful, frontline supervisors and employee opinion leaders must be won over to the cause, which means convincing them of the merits of practicing and enforcing cultural norms at every level of the organization, from the highest to the lowest. Arguments for new ways of doing things and new work practices tend to be embraced more readily if employees understand how they will benefit company stakeholders (particularly customers, employees, and shareholders). Until a large majority of employees accept the need for a new culture and agree that different work practices and behaviors are called for, there’s more work to be done in selling company personnel on the whys and wherefores of culture change. Building widespread organizational support requires taking every opportunity to repeat the message of why the new work prac- tices, operating approaches, and behaviors are good for company stakeholders and essential for the company’s future success.

FIGURE 12.2 Changing a Problem Culture

Step 1

Step 2

Step 3

Step 4

Identify facets of the present culture that are dysfunctional and impede good

strategy execution

Follow with visible, forceful actions—both substantive and symbolic—to ingrain a new

set of behaviors, practices, and norms

Talk openly about problems with the current culture and make a persuasive case for cultural

reform

Specify clearly what new actions, behaviors, and work practices should characterize the new

culture

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Substantive Culture-Changing Actions No culture-change effort can get very far when leaders merely talk about the need for different actions, behaviors, and work practices. Company executives must give the culture-change effort some teeth by initiating a series of actions that company personnel will see as unmistak- ably indicative of the seriousness of management’s commitment to cultural change. The strongest signs that management is truly committed to instilling a new culture include:

∙ Replacing key executives who are resisting or obstructing needed organizational and cultural changes.

∙ Promoting individuals who have stepped forward to spearhead the shift to a differ- ent culture and who can serve as role models for the desired cultural behavior.

∙ Appointing outsiders with the desired cultural attributes to high-profile positions— bringing in new-breed managers sends an unambiguous message that a new era is dawning.

∙ Screening all candidates for new positions carefully, hiring only those who appear to fit in with the new culture.

∙ Mandating that all company personnel attend culture-training programs to better understand the new culture-related actions and behaviors that are expected.

∙ Designing compensation incentives that boost the pay of teams and individuals who display the desired cultural behaviors. Company personnel are much more inclined to exhibit the desired kinds of actions and behaviors when it is in their financial best interest to do so.

∙ Letting word leak out that generous pay raises have been awarded to individuals who have stepped out front, led the adoption of the desired work practices, dis- played the new-style behaviors, and achieved pace-setting results.

∙ Revising policies and procedures in ways that will help drive cultural change.

Executives must launch enough companywide culture-change actions at the outset to leave no room for doubt that management is dead serious about changing the pres- ent culture and that a cultural transformation is inevitable. Management’s commit- ment to cultural change in the company must be made credible. The series of actions initiated by top management must command attention, get the change process off to a fast start, and be followed by unrelenting efforts to firmly establish the new work practices, desired behaviors, and style of operating as “standard.”

Symbolic Culture-Changing Actions There’s also an important place for symbolic managerial actions to alter a problem culture and tighten the strategy– culture fit. The most important symbolic actions are those that top executives take to lead by example. For instance, if the organization’s strategy involves a drive to become the industry’s low-cost producer, senior managers must display frugality in their own actions and decisions. Examples include inexpensive decorations in the executive suite, conservative expense accounts and entertainment allowances, a lean staff in the corporate office, scrutiny of budget requests, few executive perks, and so on. At Walmart, all the executive offices are simply decorated; executives are habitually frugal in their own actions, and they are zealous in their efforts to control costs and promote greater efficiency. At Nucor, one of the world’s low-cost produc- ers of steel products, executives fly coach class and use taxis at airports rather than limousines. Top executives must be alert to the fact that company personnel will be watching their behavior to see if their actions match their rhetoric. Hence, they need

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to make sure their current decisions and actions will be construed as consistent with the new cultural values and norms.17

Another category of symbolic actions includes holding ceremonial events to single out and honor people whose actions and performance exemplify what is called for in the new culture. Such events also provide an opportunity to celebrate each culture- change success. Executives sensitive to their role in promoting strategy–culture fit make a habit of appearing at ceremonial functions to praise individuals and groups that exemplify the desired behaviors. They show up at employee training programs to stress strategic priorities, values, ethical principles, and cultural norms. Every group gathering is seen as an opportunity to repeat and ingrain values, praise good deeds, expound on the merits of the new culture, and cite instances of how the new work practices and operating approaches have produced good results.

The use of symbols in culture building is widespread. Numerous businesses have employee-of-the-month awards. The military has a long-standing custom of award- ing ribbons and medals for exemplary actions. Mary Kay Cosmetics awards an array of prizes ceremoniously to its beauty consultants for reaching various sales plateaus, including the iconic pink Cadillac.

How Long Does It Take to Change a Problem Culture? Planting the seeds of a new culture and helping the culture grow strong roots require a deter- mined, sustained effort by the chief executive and other senior managers. Changing a problem culture is never a short-term exercise; it takes time for a new culture to emerge and take root. And it takes even longer for a new culture to become deeply embedded. The bigger the organization and the greater the cultural shift needed to produce an execution-supportive fit, the longer it takes. In large companies, fixing a problem culture and instilling a new set of attitudes and behaviors can take two to five years. In fact, it is usually tougher to reform an entrenched problematic culture than it is to instill a strategy-supportive culture from scratch in a brand-new organization.

Illustration Capsule 12.2 discusses the approaches used at América Latina Logística (ALL) to change a culture that was grounded in antiquated practices and bureaucratic management.

LO 4

What constitutes effective managerial leadership in achieving superior strategy execution.

For an enterprise to execute its strategy in truly proficient fashion, top executives must take the lead in the strategy implementation process and personally drive the pace of progress. They have to be out in the field, seeing for themselves how well operations are going, gathering information firsthand, and gauging the progress being made. Pro- ficient strategy execution requires company managers to be diligent and adept in spot- ting problems, learning what obstacles lay in the path of good execution, and then clearing the way for progress—the goal must be to produce better results speedily and productively. There must be constructive, but unrelenting, pressure on organizational units to (1) demonstrate excellence in all dimensions of strategy execution and (2) do so on a consistent basis—ultimately, that’s what will enable a well-crafted strategy to achieve the desired performance results.

The specifics of how to implement a strategy and deliver the intended results must start with understanding the requirements for good strategy execution. After- ward comes a diagnosis of the organization’s preparedness to execute the strategic initiatives and decisions on how to move forward and achieve the targeted results.18

LEADING THE STRATEGY EXECUTION PROCESS

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ILLUSTRATION CAPSULE 12.2

For many, a steam-engine locomotive’s stocky profile, bil- lowing exhaust, and hiss evoke nostalgia for a bygone era. For the managers at América Latina Logística (ALL), which had just acquired the southern freight lines of the Brazilian Rail Network (RFFSA), such antiquated locomo- tives represented the difficulties they faced in fixing their ailing railroad system, of which RFFSA was just a piece.

At the time of this acquisition, ALL was losing money, struggling from decades of underinvestment, and encumbered by bureaucratic management. Half the network’s bridges required repairs, over three-quarters of its rails were undersized for supporting standard- sized loads, and the system still relied on 20 steam- engine locomotives to move industrial customers’ cargo.

CEO Alexandre Behring’s priority was to trans- form ALL into a performance-oriented organization with the strong cost discipline necessary to support an overdue modernization program. He decided that this would require a complete cultural transformation for the

company. His first step was to recruit a new management team and fire the dozens of political appointees previ- ously administering the railroad. In his first 10 days, he and his COO interviewed the top-150 managers to evaluate their suitability. They selected 30 for additional respon- sibility and removed those who did not embrace the new direction. The company established a trainee program, and in four years hired 500 recent college graduates. In Behring’s first year, he introduced a performance-based bonus program; in his second year, the company began comparing performance on operational indicators like car utilization and on-time delivery between divisions.

The top managers also took symbolic steps to demonstrate their commitment to the new culture and to reinforce the personnel and process changes they implemented. They sold cars previously reserved for officers’ use and fired the chauffeurs retained to drive them. Behring became certified as a train conductor and spent a week each month working in the field, wearing the conductor uniform. For the first time, managers vis- ited injured workers at home. The company created the “Diesel Cup” to recognize conductors who most effec- tively reduced fuel consumption.

Behring’s new direction energized the company’s middle managers and line employees, who had been demoralized after years of political interference and inef- fectual leadership. In three years Behring transformed a company that hadn’t made a hire in over a decade into one of the most desirable employers in Brazil, attracting 9,000 applications for 18 trainee positions. In 2000 ALL finally achieved profitability, enabled by the company’s cultural transformation. ALL merged with Rumo Logistics in 2014 to create Latin America’s largest railway and logistics company.

Culture Transformation at América Latina Logística

© Pulsar Images/Alamy Stock Photo

Note: Developed with Peter Jacobson.

Sources: Company website, pt.all-logistica.com; www.strategy-business.com/article/ac00012?pg=1; blogs.hbr.org/2012/09/shape- strategy-with-simple-rul/; Donald N. Sull, Fernando Martins, and Andre Delbin Silva, “America Latina Logistica,” Harvard Business School case 9-804-139, January 14, 2004.

In general, leading the drive for good strategy execution and operating excellence calls for three actions on the part of the managers in charge:

∙ Staying on top of what is happening and closely monitoring progress. ∙ Putting constructive pressure on the organization to execute the strategy well and

achieve operating excellence. ∙ Initiating corrective actions to improve strategy execution and achieve the targeted

performance results.

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Staying on Top of How Well Things Are Going To stay on top of how well the strategy execution process is going, senior executives have to tap into information from a wide range of sources. In addition to commu- nicating regularly with key subordinates and reviewing the latest operating results, watching the competitive reactions of rival firms, and visiting with key customers and suppliers to get their perspectives, they usually visit various company facilities and talk with many different company personnel at many different organizational levels—a technique often labeled management by walking around (MBWA). Most managers attach great importance to spending time with people at company facilities, asking questions, listening to their opinions and concerns, and gathering firsthand information about how well aspects of the strategy execution process are going. Facili- ties tours and face-to-face contacts with operating-level employees give executives a good grasp of what progress is being made, what problems are being encountered, and whether additional resources or different approaches may be needed. Just as impor- tant, MBWA provides opportunities to give encouragement, lift spirits, focus attention on key priorities, and create some excitement—all of which generate positive energy and help boost strategy execution efforts.

The late Steve Jobs, famed cofounder of Apple, was noted for his practice of MBWA as CEO, spending a considerable amount of time on the floor with his employ- ees every day. Walmart executives have had a long-standing practice of spending two to three days every week visiting Walmart’s stores and talking with store managers and employees. Sam Walton, Walmart’s founder, insisted, “The key is to get out into the store and listen to what the associates have to say.” Jack Welch, the highly effective former CEO of General Electric, not only spent several days each month personally visiting GE operations and talking with major customers but also arranged his sched- ule so that he could spend time exchanging information and ideas with GE managers from all over the world who were attending classes at the company’s leadership devel- opment center near GE’s headquarters.

Many manufacturing executives make a point of strolling the factory floor to talk with workers and meeting regularly with union officials. Some managers operate out of open cubicles in big spaces filled with open cubicles for other personnel so that they can interact easily and frequently with co-workers. Managers at some companies host weekly get-togethers (often on Friday afternoons) to create a regular opportunity for information to flow freely between down-the-line employees and executives.

Mobilizing the Effort for Excellence in Strategy Execution Part of the leadership task in mobilizing organizational energy behind the drive for good strategy execution entails nurturing a results-oriented work climate, where per- formance standards are high and a spirit of achievement is pervasive. Successfully leading the effort is typically characterized by such leadership actions and managerial practices as:

∙ Treating employees as valued partners. Some companies symbolize the value of individual employees and the importance of their contributions by referring to them as cast members (Disney), crew members (McDonald’s), job owners ( Graniterock), partners (Starbucks), or associates (Walmart, LensCrafters, W. L. Gore, Edward Jones, Publix Supermarkets, and Marriott International). Very often,

CORE CONCEPT

Management by walking around (MBWA) is one of the techniques that effective leaders use to stay informed about how well the strategy execution process is progressing.

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there is a strong company commitment to training each employee thoroughly, offering attractive compensation and benefits, emphasizing promotion from within and promising career opportunities, providing a high degree of job security, and otherwise making employees feel well treated and valued.

∙ Fostering an esprit de corps that energizes organization members. The task here is to skillfully use people-management practices calculated to build morale, foster pride in working for the company, promote teamwork and collaborative group effort, win the emotional commitment of individuals and organizational units to what the company is trying to accomplish, and inspire company personnel to do their best in achieving good results.19

∙ Using empowerment to help create a fully engaged workforce. Top executives— and, to some degree, the enterprise’s entire management team—must seek to engage the full organization in the strategy execution effort. A fully engaged workforce, where individuals bring their best to work every day, is necessary to produce great results.20 So is having a group of dedicated managers committed to making a difference in their organization. The two best things top-level execu- tives can do to create a fully engaged organization are (1) delegate authority to middle and lower-level managers to get the strategy execution process moving and (2) empower rank-and-file employees to act on their own initiative. Operating excellence requires that everybody contribute ideas, exercise initiative and cre- ativity in performing his or her work, and have a desire to do things in the best possible manner.

∙ Setting stretch objectives and clearly communicating an expectation that com- pany personnel are to give their best in achieving performance targets. Stretch objectives—those beyond an organization’s current capacities—can sometimes spur organization members to increase their resolve and redouble their efforts to execute the strategy flawlessly and ultimately reach the stretch objectives. When stretch objectives are met, the resulting pride of accomplishment boosts employee morale and acts to spur continued drive to “overachieve” and perform at an excep- tionally high level.

∙ Using the tools of benchmarking, best practices, business process reengineering, TQM, and Six Sigma to focus attention on continuous improvement. These are proven approaches to getting better operating results and facilitating better strat- egy execution.

∙ Using the full range of motivational techniques and compensation incentives to inspire company personnel, nurture a results-oriented work climate, and reward high performance. Managers cannot mandate innovative improvements by simply exhorting people to “be creative,” nor can they make continuous progress toward operating excellence with directives to “try harder.” Rather, they must foster a cul- ture where innovative ideas and experimentation with new ways of doing things can blossom and thrive. Individuals and groups should be strongly encouraged to brainstorm, let their imaginations fly in all directions, and come up with pro- posals for improving the way that things are done. This means giving company personnel enough autonomy to stand out, excel, and contribute. And it means that the rewards for successful champions of new ideas and operating improvements should be large and visible. It is particularly important that people who champion an unsuccessful idea are not punished or sidelined but, rather, encouraged to try again. Finding great ideas requires taking risks and recognizing that many ideas won’t pan out.

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∙ Celebrating individual, group, and company successes. Top management should miss no opportunity to express respect for individual employees and apprecia- tion of extraordinary individual and group effort.21 Companies like Google, Mary Kay, Tupperware, and McDonald’s actively seek out reasons and opportunities to give pins, ribbons, buttons, badges, and medals for good showings by average performers—the idea being to express appreciation and give a motivational boost to people who stand out in doing ordinary jobs. At Kimpton Hotels, employees who create special moments for guests are rewarded with “Kimpton Moment” tokens that can be redeemed for paid days off, gift certificates to restaurants, flat-screen TVs, and other prizes. Cisco Systems and 3M Corporation make a point of ceremo- niously honoring individuals who believe so strongly in their ideas that they take it on themselves to hurdle the bureaucracy, maneuver their projects through the sys- tem, and turn them into improved services, new products, or even new businesses.

While leadership efforts to instill a results-oriented, high-performance culture usu- ally accentuate the positive, negative consequences for poor performance must be in play as well. Managers whose units consistently perform poorly must be replaced. Low- performing employees must be weeded out or at least employed in ways better suited to their aptitudes. Average performers should be candidly counseled that they have limited career potential unless they show more progress in the form of additional effort, better skills, and improved ability to execute the strategy well and deliver good results.

Leading the Process of Making Corrective Adjustments There comes a time at every company when managers have to fine-tune or overhaul the approaches to strategy execution since no action plan for executing strategy can foresee all the problems that will arise. Clearly, when a company’s strategy execution effort is not delivering good results, it is the leader’s responsibility to step forward and initiate corrective actions, although sometimes it must be recognized that unsatisfactory perfor- mance may be due as much or more to flawed strategy as to weak strategy execution.22

Success in making corrective actions hinges on (1) a thorough analysis of the situ- ation, (2) the exercise of good business judgment in deciding what actions to take, and (3) good implementation of the corrective actions that are initiated. Successful manag- ers are skilled in getting an organization back on track rather quickly. They (and their staffs) are good at discerning what actions to take and in bringing them to a successful conclusion. Managers who struggle to show measurable progress in implementing cor- rective actions in a timely fashion are candidates for being replaced.

The process of making corrective adjustments in strategy execution varies accord- ing to the situation. In a crisis, taking remedial action quickly is of the essence. But it still takes time to review the situation, examine the available data, identify and eval- uate options (crunching whatever numbers may be appropriate to determine which options are likely to generate the best outcomes), and decide what to do. When the situation allows managers to proceed more deliberately in deciding when to make changes and what changes to make, most managers seem to prefer a process of incre- mentally solidifying commitment to a particular course of action.23 The process that managers go through in deciding on corrective adjustments is essentially the same for both proactive and reactive changes: They sense needs, gather information, broaden and deepen their understanding of the situation, develop options and explore their pros and cons, put forth action proposals, strive for a consensus, and finally formally adopt

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an agreed-on course of action. The time frame for deciding what corrective changes to initiate can be a few hours, a few days, a few weeks, or even a few months if the situa- tion is particularly complicated.

The challenges of making the right corrective adjustments and leading a successful strategy execution effort are, without question, substantial.24 There’s no generic, by-the- books procedure to follow. Because each instance of executing strategy occurs under different organizational circumstances, the managerial agenda for executing strategy always needs to be situation-specific. But the job is definitely doable. Although there is no prescriptive answer to the question of exactly what to do, any of several courses of action may produce good results. As we said at the beginning of Chapter 10, execut- ing strategy is an action-oriented, make-the-right-things-happen task that challenges a manager’s ability to lead and direct organizational change, create or reinvent business processes, manage and motivate people, and achieve performance targets. If you now better understand what the challenges are, what tasks are involved, what tools can be used to aid the managerial process of executing strategy, and why the action agenda for implementing and executing strategy sweeps across so many aspects of managerial work, then the discussions in Chapters 10, 11, and 12 have been a success.

A FINAL WORD ON LEADING THE PROCESS OF CRAFTING AND EXECUTING STRATEGY In practice, it is hard to separate leading the process of executing strategy from lead- ing the other pieces of the strategy process. As we emphasized in Chapter 2, the job of crafting and executing strategy consists of five interrelated and linked stages, with much looping and recycling to fine-tune and adjust the strategic vision, objectives, strategy, and implementation approaches to fit one another and to fit changing circumstances. The process is continuous, and the conceptually separate acts of crafting and executing strategy blur together in real-world situations. The best tests of good strategic leadership are whether the company has a good strategy and business model, whether the strategy is being competently executed, and whether the enterprise is meeting or beating its per- formance targets. If these three conditions exist, then there is every reason to conclude that the company has good strategic leadership and is a well-managed enterprise.

KEY POINTS

1. Corporate culture is the character of a company’s internal work climate—the shared values, ingrained attitudes, core beliefs and company traditions that deter- mine norms of behavior, accepted work practices, and styles of operating. A com- pany’s culture is important because it influences the organization’s actions, its approaches to conducting business, and ultimately its performance in the market- place. It can be thought of as the company’s organizational DNA.

2. The key features of a company’s culture include the company’s values and eth- ical standards, its approach to people management, its work atmosphere and

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